Question

1. The following equations refer to the goods market of an economy in billons of S : C=500+0.8Yp; I=80; G=300 ; T=50 Answer the following questions: (a.) Solve for the goods market equilibrium. (5%) (b.) Find equilibrium disposable income (YD). (5%) (c.) Find equilibrium consumption (C).(5%) (d.) Calculate the private savings, public savings, and investment spending.(5%) (e.) Calculate the multiplier.(5%) 2. The following are the money demand and money supply functions in an economy M=8,000 : M-25000(0.4-i) Answer the following questions: (a.) Calculate the equilibrium interest rate. (5%) (b.) Suppose the central bank falls the equilibrium interest rate to 5%, will there be excess money supply or money demand? What monetary policy should be followed to reach the new equilibrium interest rate ? (5%) 3. The folliwng equations are related to the IS/LM model of an economy C = Co + Cya(Y-T): G = Go; T = To; [Y increases, I increases; i increases, Y decreases] M = SYL() (an increase in i decreases LD] Answer the following questions : (a) Suppose that I = 1(Y,I). Draw a diagram to show the effects of an increase in G on the equilibrium Y and i. Does this increase lead to an increase or a decrease in I? why? (15%) (b) Suppose that I = (Y). All other equations remain the same. Draw a diagram to show the effect of an increase in G on the equilibrium Y and i. Does this increase lead to an increase or a decrease in I? Why? (15%)

who can solve Q2 and Q3?

Answer 1

Here is the solution for second question:

Ausd : Goven i = 25000 (0.4-i) Mg - dovo . а) At equilibrium , Mo = Me ) 2500d(0.4-) = 8000 of 10,000 - 27000i z 8000 0 = LOUD 25000 i = 0.08 io, Equilibrium rate of Buterout its 8% b) of i= 5% = 0.05 g Mez 8000 My 2 28000 24-0.05) 8750 Clearly Mo> Ms , so there will be excess demand as a fall in interest rate will Increase the speculative demand for money. Monetary policy pad wc 1 My adopted should be expansion of Money supply so that is curre stufts ..08 to the right from the 0.050 - - to My and equilibrium -- -0.05 MD dovo 8,750 10,000

Date Date gets sectored at Eat the new equilibrium önterest rate 5% and new equilibrium money quanlity 8750.